The Securities and Exchange Commission (SEC) has approved
amendments to the subpoena rule as set forth in Rule 10322 of
the NASD Code of Arbitration Procedure (Code)1 to allow only
arbitrators to issue subpoenas, whether for discovery in arbitration
or for appearance at a hearing before the arbitrators.2 The SEC also
approved an amendment to the payment of arbitrators rule as set
forth in IM-10104 to provide for the payment of a $200 honorarium
per case for each arbitrator who considers contested motions for the
issuance of subpoenas.3

The text of Rule 10322 and IM-10104, as approved, are set forth in
Attachment A of this Notice. The changes to Rule 10322 will become
effective on April 2, 2007, and will apply to subpoenas issued on or
after that date, regardless of when the case was filed. The changes
to IM-10104 will apply to decisions rendered on a contested
subpoena request on or after April 2, 2007.

Under current Rule 10322(a) of the Code of Arbitration Procedure (Code), both
arbitrators and counsel of record to the arbitration have the power to issue a
subpoena, as provided by law. In the course of preparing their cases, attorneys
sometimes issue subpoenas to non-parties requesting the production of documents in
advance of an arbitration hearing. Disputes regarding the propriety or scope of these
subpoenas to non-parties occasionally arise, raising the question of whether the
subpoenaed materials should be produced. Currently, the Code does not contain any
rules that specifically address the issuance of subpoenas to non-parties or the resolution
of disputes involving such subpoenas. Thus, parties may bring their disputes to the
arbitrators or, if arbitrators have not yet been appointed, then they may resort to
litigation in court. This process may be expensive and confusing to parties.

Under amended Rule 10322, only arbitrators will be permitted to issue subpoenas for
both parties and non-parties, whether for discovery or for appearance at a hearing.
Parties will send their requests for issuance of a subpoena to the NASD Director of
Arbitration and to all other parties at the same time and in the same manner. The
request must be in the form of a written motion and must include a draft subpoena.4
The requesting party may not serve the motion or draft subpoena on a non-party.

If another party objects to the scope or propriety of the subpoena, that party must—
within 10 calendar days of service of the motion—file written objections with the
Director, with an additional copy for the arbitrator, and must serve copies on all other
parties at the same time and in the same manner as on the Director. The party that
requested the subpoena may respond to the objections within 10 calendar days of
receipt of the objections. After considering timely objections, the arbitrator responsible
for deciding discovery-related motions will rule promptly on the issuance and scope of
the subpoena.5 Arbitrators will use their discretion to determine whether or not to issue
a subpoena, and whether or not to limit the scope of a subpoena before it is issued.

After the requesting party receives subpoenaed documents from a non-party, the
requesting party must notify all other parties within five calendar days of receipt.
If another party requests copies of documents that were received in response to a
non-party subpoena, the party that requested the documents must provide the copies
within ten calendar days. The arbitration panel has authority to determine the amount
of costs incurred as a result of subpoenaed documents and by whom such costs should
be borne.

NASD believes that providing arbitrators with greater control over the issuance of
subpoenas will help to protect investors, associated persons and other parties from
abuse in the discovery process. In addition, the establishment of a uniform, nationwide
rule will reduce potential confusion for parties and their counsel regarding whether
they have the ability to issue subpoenas, minimize gamesmanship in the subpoena
process and make the rule easier to administer.

Payment of Arbitrators for Deciding Contested Subpoena Requests

In 2005, NASD amended IM-10104 to provide arbitrators with an honorarium of $200
to decide discovery-related motions without a hearing session. The revised rule did not
discuss whether a contested motion concerning a subpoena constitutes a discovery-related
motion. NASD recognizes that arbitrators may spend a significant amount of
time and effort deciding contested subpoena motions and believes that arbitrators
should be compensated for this work. Therefore, NASD has amended the payment of
arbitrators rule to provide a $200 honorarium for each arbitrator who decides
contested motions for subpoenas.

Under most circumstances, the chairperson will be the only arbitrator to consider the
subpoena requests based on the documents supplied by the parties. If a party requests
that the entire panel decide the contested motion, each arbitrator who participates in
the decision on the subpoena will receive an honorarium of $200. The honorarium will
be paid on a per case basis, regardless of the number of contested subpoena motions
considered by an arbitrator or panel during the case. Furthermore, the maximum
amount that will be paid by the parties for any one case will be $600, irrespective of
any changes to the composition of the panel.6 NASD believes that structuring the
honorarium in this manner will limit the arbitration costs for parties while at the same
time compensating arbitrators for the time that they spend considering contested
subpoena requests.

1Rule 10322 will be renumbered as Rule 12512 in
the NASD Code of Arbitration Procedure for
Customer Disputes (Customer Code) and Rule 13512 in the NASD Code of Arbitration
Procedure for Industry Disputes (Industry Code)
when those Codes become effective on Apr. 16,
2007. Similarly, IM-10104 will be renumbered as
Rules 12214 and 13214. See Notice to Members 07-07 (Feb. 2007).

4 Motions are not required to be in any particular
format. They may take the form of a letter,
legal motion or any other format that the panel
decides is acceptable. NASD anticipates that the
motion accompanying a subpoena will provide
the panel with relevant information that would
not be obvious from the draft subpoena itself,
such as the rationale for the request.

5 Normally, the chair will issue subpoenas.
In customer cases, the parties are given an
opportunity to agree on their chairperson, who
is almost always a public arbitrator, and if they
cannot agree, then the highest-ranked public
arbitrator is appointed as the chairperson.
See NASD Rule 10308(c)(5). In intra-industry
cases, the chair may be a public or non-public
arbitrator, as appropriate to the type of case.
Under the amendments to the Code that will
be effective on April 16, 2007, parties will
select their chair from a list of chair-qualified
arbitrators; see the Rule 12400 and 13400 Series.

6 If more than three arbitrators decide contested
subpoena motions in a particular case because
of changes in the panel, NASD will absorb the
cost of any honorarium that exceeds $600.

(1) The honorarium for deciding one or more contested motions requesting the issuance of a subpoena
without a hearing session shall be $200. The honorarium shall be paid on a per case basis to each arbitrator who
decides the contested motion(s). The parties shall not be assessed more than $600 in fees under this paragraph in
any arbitration proceeding. The honorarium shall not be paid for cases administered under Rules 10203 or 10302.

(2) For purposes of paragraph (f)(1), a contested motion requesting the issuance of a subpoena shall include
a motion requesting the issuance of a subpoena, the draft subpoena, a written objection from the party opposing
the issuance of the subpoena, and any other documents supporting a party's position.

(3) The panel will allocate the cost of the honorarium under paragraph (f)(1) to the parties pursuant to Rules
10205(c) and 10332(c).

* * *

10322. Subpoenas and Power to Direct Appearances

(a) [Subpoenas

The arbitrators and any counsel of record to the proceeding shall have the power of the subpoena process
as provided by law. All parties shall be given a copy of a subpoena upon its issuance. Parties shall produce witnesses
and present proofs to the fullest extent possible without resort to the subpoena process.] To the fullest extent
possible, parties should produce documents and make witnesses available to each other without the use of
subpoenas. Arbitrators shall have the authority to issue subpoenas for the production of documents or the
appearance of witnesses.

(b) A party may make a written motion requesting that an arbitrator issue a subpoena to a party or a nonparty.
The motion must include a draft subpoena and must be filed with the Director, with an additional copy for the
arbitrator. The requesting party must serve the motion and draft subpoena on each other party, at the same time
and in the same manner as on the Director. The requesting party may not serve the motion or draft subpoena on a
non-party.

(c) If a party receiving a motion and draft subpoena objects to the scope or propriety of the subpoena, that
party shall, within 10 calendar days of service of the motion, file written objections with the Director, with an
additional copy for the arbitrator, and shall serve copies on all other parties at the same time and in the same
manner as on the Director. The party that requested the subpoena may respond to the objections within 10 calendar
days of receipt of the objections. After considering all objections, the arbitrator responsible for deciding discoveryrelated
motions shall rule promptly on the issuance and scope of the subpoena .

(d) If the arbitrator issues a subpoena, the party that requested the subpoena must serve the subpoena at
the same time and in the same manner on all parties and, if applicable, on any non-party receiving the subpoena.

(e) Any party that receives documents in response to a subpoena served on a non-party shall provide notice
to all other parties within five days of receipt of the documents. Thereafter, any party may request copies of such
documents and, if such a request is made, the documents must be provided within 10 calendar days following
receipt of the request.

(f) [Power to Direct Appearances and Production of Documents
An arbitrator] The arbitrator(s) shall be empowered without resort to the subpoena process to direct the
appearance of any person employed by or associated with any member of the Association and/or the production of
any records in the possession or control of such persons or members. Unless an arbitrator directs otherwise, the party
requesting the appearance of a person or the production of documents under this Rule shall bear all reasonable costs
of such appearance and/or production.

1 The text of these rules as renumbered by the Customer and Industry Codes can be found on the NASD Web site. While the new Codes generally apply to claims filed on or after April 16, 2007, amended Rules 12214 and 13214 will apply to decisions rendered on a contested subpoena request on or after April 2, 2007; and the changes to Rules 12512 and 13512 are effective on April 2, 2007, for subpoenas issued on or after that date.